We have profoundly updated our model, taking into account recent acquisitions and demographic trends. We up our EPS estimates to € 2.32FY12E and € 2.51 FY13E and revise our target price to € 45.
Senior housing drives growth
Aedifica is a purely residential Belgian REIT. We applaud its strategic focus on the residential market that responds perfectly to the current demographic trends ofattraction to the city and aging. This demand is estimated to support the company’s earnings generation through the coming years.
The company strongly increased the importance of the senior housing segment in its portfolio to 54% of total value. Other segments represent respectively 24% non-furnished apartment buildings, 11% furnished apartment buildings and 11% hotels & smaller assets. End 3Q11/12, Aedifica’s total portfolio has a value of € 579m, an occupancy rate equalling a staggering 97.9% (excl. furnished apartments) and a stable yield of 6.3%. The long-term leases of the nursing homes and hotels elevate the portfolio’s averagelease maturity to an impressive 17 years, strongly ensuring cash flow generation.
The long-term, triple-net leases of the senior houses and hotels diversify the more cyclical oriented and shorter-term contracts of the furnished and non-furnished apartments. However, the latter compensate their relatively shorter leases with a higher yield. Furthermore, the company diversifies its portfolio across Belgium (Brussels 48%, Flanders 36% and Wallonia 16%).
We believe the company to grow its portfolio towards € 779m in FY14/15E. This is in-line with the company’s current growth rate and is expected to be attainable given Belgian’s strong need for senior houses as expressed in recent comments of the Federal Planbureau (they state the need to build one nursing home per month to respond to estimated demand). As such, we expect growth in EPS around 10% annually. This will furthermore strengthen the growth in dividends, given the required 80% pay out ratio. These dividends have already showed a strong track record since the company’s IPO in 2007. Moreover, they benefit from the favourable Belgian tax regime which exempts residential REITs of paying withholding taxes on dividends.
Valuation & share rating
We revise our TP towards € 45 following the update of our model. This corresponds to a 4% dividend yield and P/NAV12E of 1.07x. Given the shares’ high liquidity and the 4% yield, we consider Aedifica, a residential REIT, to be a good investment in comparison to other residential real estate. However, we believe the company’s performance to be already priced in, Hold.